FINRA Anti-Money Laundering (AML) sanctions include fine and suspension for AML Compliance Officer

When we do trainings on compliance issues, we consistently focus on the importance of having policies and procedures in place and then operating consistently with them. Our guidance is that it is often worse to have policies in place and not follow them than to not have policies in the first place. We have increasingly been emphasizing the compliance officer’s role – and exposure – on a variety of compliance issues. In the record fine, $8 million, announced yesterday by FINRA against Brown Brothers Harriman (BBH) for AML Compliance Failures, BBH’s former AML Compliance Officer was specifically fined $25,000 and suspended for one month. FINRA found that BBH lacked an adequate supervisory system.

The specific failures relative to AML at BBH do not translate directly to insurance, but the systemic issues, including failure to investigate potentially suspicious transactions and failing to file Suspicious Activity Reports, could. Similarly the apparent basis for the sanctions against the compliance officer, failing to have an adequate AML program and failing to monitor and detect suspicious transactions, could be a problem for insurance industry compliance officers, too.

This is a clear reminder that real compliance is more than a compliance officer being in place. It is also a warning to those compliance officers who may have the title of compliance officer, but lack the resources or authority to do the job the title suggests. That doesn’t help the organization and it exposes the named compliance officer to sanctions. A compliance officer must take his/her job seriously and must have the resources to do it properly. Without that, both the firm and the compliance officer are at risk.

Tennessee Joins States with Advice on Permitted/Prohibited Activities Based on Licensing

In our Advertising and Distribution Compliance Department, we receive questions on this issue almost every day. Having guidance on what an “insurance-only” producer can and cannot do from the states is very helpful in framing those discussions. Tennessee now joins the small number of states providing that guidance in their Bulletin dated May 22, 2013, titled: Licensing and/or Registration Requirements and Permitted Activities.

Tennessee’s guidance is very similar to that first offered by Iowa in that the list of permitted activities clearly and explicitly includes the items that must be discussed to complete the suitability forms now mandated in most states and carriers.

From a producer’s perspective, some of the most important and difficult issues are raised in the following statements from the Tennessee Bulletin:

“In his or her general discussion about the expectations of the funds being considered to purchase the annuity or life insurance, the Insurance-Only Person may discuss: that the funds need protection from market risk; that the tax status of the funds and that tax deferral needs to be utilized or maintained; that the funds may be needed to provide a lifetime income stream; that the funds need to earn a guaranteed interest rate; or that there are other funds available during the surrender period of the annuity or life insurance for emergency or urgent needs and where those funds are located….”

This statement is completely reasonable, but in practice it puts the Insurance-only producer in the difficult situation of identifying assets that could fund an insurance product but then having to send the prospect elsewhere to liquidate them. That is a tough thing for anyone in sales to do, even if they know it is the right thing to do. As a result, in practice, there is a lot of pressure to find a way around these rules and we have often heard that no insurance producer has ever been disciplined for this type of source of funds issue. I am hopeful it won’t take such regulatory action to achieve widespread compliance, but it might. The Bulletin notes that the penalties could be license probation, suspension, and revocation, as well as fines of up to $10,000/violation.

For any producers operating on the assumption that this will not be enforced, I encourage placing a call to the Tennessee Insurance Department. Our opinion is that the DOI put the bulletin out because they are concerned about these issues and that operating on another assumption puts one’s livelihood at risk, not to mention one’s savings.

Mailers Lead to Problems Again

In every presentation we give on producer-generated advertising, we talk about postcard mailers. There are so many that are clear sources of exposure and they are very prevalent in the industry. At the Association of Insurance Compliance Professionals (AICP) New England Chapter E-day in May of this year, we asked Jennifer Sourk and Jason Lapham of the Kansas Insurance Department to join us because they had a recent Bulletin on this issue of lead generation materials.

One thing we warn against in our prepared talks and in our individual reviews of advertising is the use of scare tactics. We make that comment so many times we lose count. The New Jersey Department of Banking and Insurance may be the latest regulator to fine a producer for the scare tactics used in a mailer – a mailer likely obtained from a lead generating company unaffiliated with any licensee. That is most often the case.

Lead generation mailers can be trouble for producers like the one fined $2,500 in NJ. But they can also be trouble for the insurance company who ultimately sells an annuity contract or life insurance policy, even if it is many sales steps removed from the postcard. Some violations in the sales process simply may not be able to be cured, even if everything after that initial mailer improves. Regulatory attention is clearly focused on lead generation and all parties in the process would be wise to make sure that sales result from clean leads too.